US embassy cable - 04BRASILIA1229

UNCLAS SECTION 01 OF 02 BRASILIA 001229 
 
SIPDIS 
 
USAID FOR LAC/SAM AND EGAT/EIT/E 
DOE FOR IEC AND EERE 
COMMERCE FOR 4332/WBASTIAN/JANDERSON/DMCDOUGALL 
COMMERCE FOR 3134/010/DEVITO/ANDERSON/OLSON 
 
E.O. 12958: N/A 
TAGS: EAID, ENRG, ECON, BR, Energy 
SUBJECT:  POWER FUTURE 2004 ENERGIZES NGOS, GOB, AND PRIVATE 
SECTOR RENEWABLE ENERGY PLAYERS 
 
 
1. Summary.  Power Future 2004, a trade fair and seminar on 
renewable energy technologies, was held April 27-29, 2004 in 
Fortaleza, Brazil.  Organized by Brazil's Renewable Energy 
Network of Non-governmental Organizations (RENOVE) with 
USAID/Brazil support, the event allowed private and public 
sector participants to exchange ideas on a wide range of 
issues critical to the future of Brazil's growing renewable 
energy market.  In addition, the event provided an excellent 
opportunity for equipment and service providers, financial 
institutions, and project developers to establish the 
partnerships that will allow them to effectively compete for 
contracts under Brazil's Renewable Energy Incentives Program 
(PROINFA).  The event was a major success, attracting over 
2,000 participants and 40 local and international 
exhibitors, including five U.S. corporations.  Preliminary 
reports indicate that it resulted in direct sales, service 
contracts, and business partnership proposals valued as high 
as USD 100 million. 
 
PROINFA 
------------- 
 
2.  The PROINFA Renewable Energy Incentive Program, 
established in 2002 during the Cardoso administration, has 
been endorsed by the Lula government and is moving forward 
as designed.  It guarantees the government purchase of 3,300 
megawatts of power from renewable energy sources - 1,100 MW 
from wind, 1,100 MW from small hydro and 1,100MW from 
biomass - over the next two years, with the goal of 
stimulating the renewable energy market while increasing 
power generation from renewable sources by 50%.  The PROINFA 
program also requires that 10% of total installed electrical 
generation capacity be derived from renewable energy sources 
by 2026. 
 
3.  Eletrobras recently called for proposals for the first 
installment of the government purchase of 3,300 MW of 
renewable energy.  The corresponding contracts should be 
signed by May 31, 2004, as PROINFA legislation requires that 
this first set of projects be operational by the end of 
calendar year 2006.  The GoB anticipates that the PROINFA 
program will generate USD 3 billion in renewable energy 
investments over the next two years and create more than 
150,000 new jobs. 
 
POWER FUTURE 2004: Content, Concerns, and Results 
--------------------------------------------- --------------- 
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4. USAID/Brazil originally proposed the idea of a renewable 
energy trade fair and conference to one of its key 
implementing partners, RENOVE, as a means to stimulate 
investment and improve cooperation between the government 
and the NGOs and private companies working in the renewable 
energy sector.  NGOs, corporations, developers, and 
investors responded enthusiastically, making Power Future 
2004 Brazil's largest ever renewable energy trade fair.  The 
event generated a healthy debate over the design and 
implementation of the PROINFA renewable energy incentive 
program, and raised the following key points of concern: 
 
- Project developers expressed great disappointment over a 
PROINFA policy that places a generation ceiling of 220 MW on 
single energy sources (wind, hydro, or biomass) in any given 
state.  Technical experts and project developers argued that 
this action will result in inefficient utilization of 
natural resources throughout the country.  For example, in 
the coastal state of Ceara where strong winds are a 
constant, wind farms represent an extremely viable and 
financially attractive source of renewable energy.  However, 
the 220 MW single-source ceiling could result in PROINFA 
awarding contracts for a number of far less promising 
programs in Ceara; the same will be true in other states 
where a given source of renewable energy is particularly 
well suited.  Seminar participants argued persuasively for 
allowing technical and regional considerations to determine 
the appropriate mix of renewable energy sources.  The 
renewable energy community is hopeful that this message will 
lead the Ministry of Mines and Energy (MME) to reconsider 
its position on PROINFA program energy source ceilings. 
 
 
- Private sector representatives expressed concern over MME 
actions to control PROINFA energy pricing.  After the first 
public hearing in July of 2003, MME unilaterally reduced the 
purchase price for renewable energy, failing to adequately 
address production costs and other market considerations. 
 
- Private sector representatives argued that conditions 
established for GoB financing through the Brazilian Bank for 
Social and Economic Development (BNDES) are unacceptable. 
High interest rates, excessive loan guarantee requirements, 
and an overly bureaucratic application process were some of 
the obstacles identified during the seminar. 
 
5. Limited participation by the MME at Power Future 2004 
also raised concerns.  The ministry sent a representative to 
the event, who was more often than not unable to respond to 
concerns and questions, particularly with respect to the 
PROINFA program. 
 
6. Participation in Brazil by the U.S. renewable energy 
industry remains relatively modest.  The majority of 
international investors in the sector come from European 
countries, notably Germany, Portugal, and Spain.  However, 
this situation appears to be changing, as five U.S. 
equipment suppliers actively participated in Power Future 
2004 events: GE Energy, Clipper Wind Power, Woodward, 
Cummins, and Caterpillar. 
 
7. One noteworthy outcome of Power Future 2004 was the 
creation of a partnership between Clipper Wind Power, a 
California-based firm, and a local company based in 
Sorocaba, Sao Paulo, for the manufacture of turbine blades 
and towers in Brazil.  Another achievement was the further 
strengthening of RENOVE, a key contributor to USAID/Brazil's 
strategic focus on mitigating global climate change through 
the promotion of viable alternative energy technologies and 
energy efficiency.  Power Future 2004 also resulted in 20 
new organizations and businesses joined Brazil's largest 
renewable energy association, which now has over 40 members. 
This group is fast developing into a formidable voice for 
positive policy reform in the energy sector.  Moreover, it 
is leading a nation-wide effort to advance renewable energy 
technology as the one of the best options for improving the 
quality of life and economic opportunities for the estimated 
12-15 million Brazilians that currently lack access to 
reliable power. 
 
HRINAK